It has been about a month since the last earnings report for East West Bancorp (EWBC Quick QuoteEWBC - Free Report) . Shares have added about 16.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is East West Bancorp due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

East West Bancorp Q4 Earnings Beat, Revenues Down Y/Y

East West Bancorp’s fourth-quarter 2020 earnings per share of $1.15 outpaced the Zacks Consensus Estimate of $1.03. However, the figure is down 10.9% from the prior-year quarter. Results included adjustments related to DC Solar tax credit investments.

Results reflect rise in non-interest income and lower expenses. Also, the company witnessed a rise in loan and deposits balance during the quarter. However, decline in net interest income, mainly due to lower interest rates, was a major undermining factor. Also, provisions increased during the quarter.

Adjusted net income was $161.5 million or $1.13 per share, down from $187.1 million or $1.28 per share in the year-ago quarter.

In 2020, earnings of $3.97 per share beat the consensus estimate of $3.85 but was down 13.9% year over year. Adjusted net income was $565.2 million or $3.95 per share, down from $707.9 million or $4.84 per share in 2019.

Revenues & Expenses Down

Net revenues for the quarter were $416.4 million, down 4.1% year over year. However, the figure beat the Zacks Consensus Estimate of $389.8 million.

In 2020, net revenues declined 4.6% to $1.61 billion. However, the top line surpassed the consensus estimate of $1.58 billion.

Net interest income came in at $346.6 million, down 5.9% year over year. Net interest margin also contracted 70 basis points (bps) to 2.77%.

Non-interest income was $69.8 million, up 6.1%. This rise mainly resulted from higher deposit account fees, foreign exchange income and other income.

Non-interest expenses declined 8.9% to $178.7 million. The fall was primarily due to lower amortization of tax credit and other investments, legal expenses and consulting expenses.

Efficiency ratio was 42.90%, down from 45.20% recorded in the prior year quarter. A fall in the efficiency ratio indicates improvement in profitability.

As of Dec 31, 2020, net loans were $37.8 billion, up 2.6% sequentially. Total deposits increased 7.6% to $44.9 billion.

Credit Quality Worsens

Annualized quarterly net charge-offs were 0.20% of average loans held for investment, up 10 bps year over year.

As of Dec 31, 2020, non-performing assets were $234.9 million, surging 93.3%. Also, provision for credit losses was $24.3 million, up 31% from the prior-year quarter.

Capital & Profitability Ratios Deteriorate

As of Dec 31, 2020, common equity Tier 1 capital ratio was 12.7% as of Dec 31, 2020, down from 12.9% as of Dec 31, 2019. Total risk-based capital ratio was 14.3%, down from 14.4%.

At the end of the fourth quarter, return on average assets was 1.24%, down from 1.68% as of Dec 31, 2019. Further, as of Dec 31, 2020, return on average tangible equity was 13.77%, down from the 16.61%.

2021 Outlook

Management assumes no change in interest rates. Adjusted NII is projected to grow in line with loan growth and exclude paycheck protection program (PPP) income. Loans are expected to grow 6-8% range.

Adjusted non-interest expenses (excluding (ex. tax credit investment & core deposit intangible amortization) are anticipated to rise 3-5%.

Provision for credit losses is likely to be between $70 million and $80 million.

Effective tax rate is expected to be roughly 15%, including the impact of tax credit investments.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 20% due to these changes.

VGM Scores

Currently, East West Bancorp has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise East West Bancorp has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.